Will Gold Spiral Upward or Crash

Thomson Reuters GFMS Gold Survey 2014

Thomson Reuters recently published its 2013 gold survey. This is a comprehensive document that researches and reports on the supply and demand of gold yearly. It is very detailed and quite revealing.

The amounts quoted in this blog come directly from this survey which may be found in the accompanying link. 

This is a very comprehensive document that is well written and a must read for all investors who have an interest in gold. Rather than the widely varying quotes one hears in the media about whether there is more or less gold being produced, bought or sold, this document is well researched and reliable.

 

The Supply of Gold

 In 2013, gold production from mining rose 5.6% to a record 3022 tonnes, which continued a decade long trend.

Gold acquired from scrap reversed the trend of the last 4 years and fell 354 tonnes (21%), probably from reducing offerings due to the drop in the price of gold paid for scrap.

A net total of 4,254 tonnes of gold became available.

 

The Demand for Gold

 The total demand for gold rose to a record 4,957, an increase of 642 tonnes or 14.8%, mostly attributable to jewelry demand which increased 363 tonnes.

This increase in demand was met through a decrease in EFT holdings, probably as the fear of financial meltdown abated, investors shed the security of gold.

 

Cost of Producing Gold

The “all in” average cost (excluding write downs and write offs) to produce an ounce of gold in 2013 was US$ 1,205. The average total cash cost was US$ 767.

 

Thanks to Thomas Reuters for the above noted information.

 

Demand v Supply

Unlike many other commodities, the supply/demand equation for gold does not work on the simplicity of what is supplied v what is demanded. The great balancing act are the vast stores of gold held by governments and private interests around the world, which become more or less available through many factors, some political, some economic.

What is of particular interest is that the supply of gold is growing at a significantly lesser rate, than the demand for gold. As the investing middle class of people grows in number around the world, the demand for gold continues its growth at a substantial rate. Local fears of currency weakness, local government restrictions on the importing or exporting of currency, local political in-fighting, and many other factors all contribute to a permanently increasing demand for the Yellow Metal.

 

Cost of Producing Gold

In spite of massive deflation in costs around the world, the actual cash cost of producing an ounce of gold, remains constant at $767.  

It is not difficult to conclude, that if there is a fall in the price of gold through Wall St manipulation, or some world crisis, it will be a temporary fall. As the cost of obtaining more gold from the ground remains high, the value of an ounce of gold will also remain high over the long term.

While physical gold may, or may not be, the best way to invest (a subject for another time), the long term price of an ounce of gold, seems likely to increase.

 

How to Invest in Gold

The major gold producing companies around the world have not proven to be good investments. The combination of their depletion of reserves, their massive and bloated overhead structures, and their foolish investments in other gold producing companies, have all contributed to a lack-lustre share price.

The junior producers, or about to be producers, today are bargains. They have been beaten down over the resource meltdown of the last few years, and some are at fire sale prices. CymorFund has highlighted some of these that have great potential such as:

  • Lake Shore Gold
  • Premier Gold Mines
  • Remarco
  • Detour 
  • and others

 

 

 

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By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.